Olympus transforms into global medtech leader

Aging populations are a growing global trend, and several countries now have more than 20% of their population over the age of 65. Japan is foremost among these countries, and with this aging population, we’re seeing huge pressure put on its healthcare systems. AI technologies are being hallmarked as a way to alleviate these problems in the medical sector. Can you tell us Olympus' vision when it comes to AI and robotics? How will DX technology transform the healthcare sector in the future?

AI, digital, and endoluminal technologies are important aspects of our aspiration to shape the future of healthcare and elevate the standard of care in the long run. We envision this in our "digital endosuite" concept, which goes far beyond the current endoscopy or endoscopic procedures, offering a series of smart, curated solutions that could extend the reach of endotherapies with improved patient experience by leveraging AI and other digital tools and technologies.

Some of our digital initiatives are already in progress. Led by a dedicated global team, we are harnessing the power of digital technology and automation to reduce administrative work and improve process efficiency for clinicians and staff, allowing them to focus on serving their patients. Our three core focuses on the digital field are: to develop a unique cloud platform that embraces data collection, AI, and machine learning capabilities; to improve the endoscopy workflow management platform to reduce the administrative burden for the clinicians by automating report writing, procedure data capture, and improving reporting accuracy with less effort; and to establish market leadership in a computer-aided detection (CADe) and computer-aided diagnosis (CADx) solutions to support in clinical decision making.

We look to incorporate AI into many of our clinical workflows and procedures in the near future, and endoscopy is no exception. In Japan and other regions, we have already launched a computer-aided detection (CADe) endoscopy application, powered by AI, which automatically detects suspicious lesions using real-time visual overlays. We recognize that AI technologies have the power to elevate endoscopic imaging to uncharted levels. 

Doctors and surgeons will always be required to make clinical decisions during each procedure, and AI tools can support them in making better decisions. Several AI-powered medical applications have already been approved in several countries across multiple therapeutic areas, which shows that these tools are finding acceptance in the clinician’s toolkit. Olympus recently acquired a UK-based company with strong expertise in cloud-based AI development. We are open to partnering with all kinds of entities, including start-ups, large companies, and academic organizations, to continue leading the development of better healthcare solutions that improve both care delivery and patient outcomes.

Olympus has a global footprint and a leading position in the gastrointestinal endoscopy field, but we also know that you're looking to expand your business in the therapeutic solutions area in the future. Where do you see the challenges? There are a number of relevant but different regulations worldwide that need to be complied with. The second biggest challenge may be the influence of group purchasing organizations that put pressure on prices and dictate prices in larger markets. Lastly, companies already established and competing in therapeutic markets may have a first-mover advantage that you don't have. What do you consider the biggest challenge as you expand in the therapeutic solutions sector?

Therapeutic areas are not new to Olympus, in fact, we reorganized our business in 2019 to align it with the therapeutic areas our products and solutions are focused on. This new organizational structure has allowed us to improve business speed and efficiency in line with global medical technology peers. We aim to grow our therapeutics businesses organically and inorganically aligned to this new structure.

We already have a leading market share in the gastrointestinal (GI) endoscope market through our collaboration and trust around relationships with global healthcare professionals that have blossomed for over 70 years. We were the first company to develop a GI endoscopy solution and have worked with doctors to establish many new and innovative procedures in the GI area.

EVIS X1 Olympus’ most advanced endoscopy system

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We have developed innovative endoscopic treatment solutions and are now one of the key players in endoscopic surgery. The recognition and achievements we have earned in the GI sector reinforce our standing in the industry. With our strong reputation and robust strategy, we see tremendous potential to grow GI, urology, and respiratory across our endoscopic and therapeutic portfolios.

We moved our headquarters function for our therapeutic business to the US to get closer to one of the world’s largest medical industry clusters and access quality manufacturing and procurement capabilities. This also allows us to better make decisions for the global market and be closer to business development, co-creation, and talent acquisition opportunities.

The Food and Drug Administration (FDA) approves all medical devices to be marketed in the US and although its mandate is only for the US market, it actually functions as the de-facto regulator for the world. Could you give us your take on the advantage of having an office there and getting approved first in the United States? How does that help you expand in other internationally regulated markets?

The safety of patients and healthcare professionals is of paramount importance to Olympus globally. We are constantly improving our quality management and regulatory processes. We take all actions by regulatory bodies very seriously and work collaboratively with regulators worldwide to meet all requirements.  

Within this expansion in the therapeutic market is Olympus looking to do more collaborations, perhaps in the style of M&As or joint ventures? If that is the case, what does a partner of choice look like?

M&A and third-party partnerships remain a strategic way for Olympus to accelerate our initiatives and complement our efforts, aiming to enhance the patient care pathway and fulfill unmet needs.

All our Medical business units have identified emerging trends and growth opportunities, which we will pursue on a case-by-case basis. That said, our corporate strategy has identified specific growth areas of GI, urology, and respiratory, where we believe we can expand our portfolio to improve patient care.

We are always evaluating potential acquisition targets, but our view is that M&A is simply another way of accomplishing our business and strategic goals. For me, acquiring another company is a big decision that always comes with risk, but the right acquisitions also unlock big opportunities. A fundamental strategy and strong collaboration and integration efforts are required to make such investments successful.

For many years, we have grown our business by self-developing products. Today, however, it is evident that we need to expand our capabilities with external partners to continue our success. We must make smart decisions on which technology we can develop ourselves and which we need to collaborate on. The M&A team is working closely with the business team to meet those needs. We are ready to expand our business development activity and have established an organization, including a venture fund, that is monitoring and evaluating opportunities globally.

Last August you decided to sell off Olympus's Scientific Solutions Business, which accounted for 10% of your consolidated sales. It was purchased by Bain Capital, a private US equity firm for USD 3 billion. Can you tell us why you decided at this moment to divest that part of your business? This comes two years after your legacy business in cameras was sold off. What's the reasoning behind divesting these businesses slowly and why is now the right moment to do so?

The decision was based on our corporate strategy announced in 2019, in which we decided to focus on growing our medical business. Let me explain some background:

I'd been thinking hard about our company's path for some time, even before I took the CEO role. About 70% of business opportunities came from outside Japan when I first joined this company. Most of the sales and marketing efforts were geared toward a global market, and management pushed for overseas expansion. That said, everything else was made in Japan including our engineering innovation. I think at the time Olympus was a typical Japanese manufacturing company which provoked a question I pondered: "What is a global company? What exactly does it mean for us to be a global company?"

I've been telling myself that we must explore new growth opportunities and asking exactly how I could make that happen. I imagined in my mind a global company, a blueprint of Olympus' transformation plans. It was clear that we needed to change the company's entire decision-making and governance system. Establishing a management structure that enables agile and rapid decision-making accelerates the improvement of our business proposition. 

We saw the Imaging Business shrinking over time. Sooner or later, we had no other option but to divest that business and started looking for a new partner.

The same theory applies to the Scientific Solutions Business. They were making a reasonable profit and showed opportunity for growth when treated in the right environment. Our infrastructure optimized for the medical business did not provide for an ideal set-up, so we started to look for a potential partner that could accelerate its corporate value.

Before we divested the business, there was much discussion about how we could separate the business smoothly, as there were a lot of common functions between Scientific Solutions and Medical. We needed to carve out those functions before the divesture, which took some time.

I am confident that both decisions on Imaging and Scientific Solutions were the right decision to maximize the business's future value.

You mentioned how when you became CEO there was a need to diversify the thinking and the company culture. You made a very bold move in 2019 when you allowed a US hedge fund, ValueAct Capital Management, to join the board of Olympus. This was one of the first times that a Japanese company has done such a thing. Two years later the stock price for Olympus has more than tripled, profitability went up, sales went up, and it seems like since that point the company has enjoyed some amazing performances year-on-year. Do you believe that these two are correlated, and why?

Let me explain first, as it's often misunderstood. There was no pressure from institutional investors about the divestiture of the Imaging and the Scientific Solution Business. It was a necessary decision based solely on the future of the company. ValueAct, represented by Rob Hale, is one of our several diverse directors. Their job is to provide strategic advice and governance.

To improve our governance structure, we have moved from a company with an Audit & Supervisory Board to a company with three committees, Nominating, Compensation, and Audit committees. In order for this management system to work effectively, it is important to ensure that we have directors with different expertise to supervise us. This new system play a very different role from the traditional Japanese system of boards of directors, which many of the discision making issues of the company are being delegated to the executives from the previous management system .

My belief in corporate governance is that its format is not important; it should be a system in which outside board directors oversee the execution of the executive team. It is extremely important for the executive team to provide the directors with the necessary information to properly understand the company's situation. Most importantly, the CEO and the Board Chairman must have a trusting relationship and frequently communicate – something I believe is working well in our company.

The change in governance structure and the increased diversity of our team are the basis for our success. This increased our speed in decision making leading to the executive team operating with more agility.

You had a clear vision that the company needed to change but when it comes to change Japanese firms famous for 'dragging their feet'. I'm sure you experienced some pushback initially, what were your managerial strategies and some of the key priorities you needed to achieve in order to make that vision a reality?

Yes, it was a tough time, but I felt there was no other way. I really wanted everyone to feel the risk of stagnation and understand that the current culture back then wasn’t fit for purpose in the world we live in today. The company had reached a turning point and had we continued in the same direction, it could have led to much more drastic changes that were forced upon us. For that reason, I wanted us to push to preemptively make the right changes, and I wasn’t fearful of leading us in a new strategic direction.

I first advocated that the purpose of this company needs to change, and with that, to revamp our corporate philosophy. I wanted to create a purpose of what Olympus stands for and how we will contribute to society. I believed this was indispensable to achieving sustainable growth and transforming the business into a truly global company and not just a collection of local companies. However, it was not easy to implement when the parent company was based in Japan, and all decision-making was done here.

We spent a lot of time discussing and establishing our core values, one component of our corporate philosophy, which became the foundation of the company's decision-making and day-to-day activities. We felt that it was necessary to move away from a situation where each subsidiary operated independently and siloed, but instead, for all businesses to make an effort to create global synergies across borders by sharing the company's purpose. To change the culture and achieve this synergy, we must unite the minds of all employees to our new strategic direction, no matter what business they belong to, what country they work in, or what their role is, we need to lead them in a way that aligns their work with our goals.

You spoke earlier about the importance of diversifying opinions in your company, and perhaps that means non-Japanese-based opinions too. To that end, you have appointed Stefan Kaufmann as the new CEO pending board approval in April 2023. Could you introduce him to our readers and explain why this change will take place?

Since I was appointed CEO, I have considered what kind of structure Olympus should adopt to become a global medical technology company. Over the past four years, I have carried out the most comprehensive corporate reform in our more than 100-year history. We are now on the verge of achieving the ambitious target of our corporate strategy ending this fiscal year. This will mark the completion of our transformation groundwork, and it will be time to move on to a new phase of growth for Olympus, which can best be prepared and executed by a new leadership team.

I am confident that Stefan will lead Olympus to this next level by focusing on innovation, patient safety and productivity while increasing the standard of care in the areas where we have the greatest impact.

Stefan has a background in human resources and a strong track record of driving change for our company in complex Europe, the Middle East, and Africa regions. He most recently served as Chief Administrative Officer, Chief Strategy Officer, and Chief Transformation Officer, responsible for overseeing the implementation of our transformation program. Furthermore, he has been a member of the Board of Directors and a trusted member of the "Transform Olympus" global executive committee. Given his track record, I believe he is the ideal candidate to succeed as CEO and President.

You are stepping down as CEO and president, however, you will still stay on at Olympus as chairman and environmental, social, and governance (ESG) officer. In this new position, what are some of the key objectives that you've set yourself?

ESG, in my opinion, is an integral part of management and our company as a whole for us to maximize our performance and bring out the best in us. I accepted the role because it shows our seriousness and commitment to society. Presently, ESG is seen as an independent initiative, and employees may not feel their contribution is significant. I want to change that perception and for each employee to commit to ESG together.

As we have transitioned from a domestic-focused company to a global one, there are still many challenges to overcome such as culture, language, and management style. I would like to play a role in contributing to that exciting transition.

Looking back at the past 4 years of your presidency, what do you consider to be both your biggest mistake and your biggest accomplishment?

I think my biggest regret is that I should have started the company's transformation much earlier. There were certain disadvantages and difficulties which could have been solved if we had started earlier.

In terms of accomplishments, I feel there are many.  I am proud of the transformation I have initiated for us to become a leading global medical technology company. The change in governance structure and increased diversity are significant and pave the way to success. We clarified the role of executive officers and the board of directors, with the executives in charge of management and the board of directors monitoring it. This contributed to improvements in our overall abilities and speed of execution. I am also proud of all the Transformation initiatives and projects done on a global scale that enabled us to manage Olympus as a global company.